By Kevin Kelleher, contributor
FORTUNE -- For most of the 12 years since the dot-com bubble burst, Cisco was a true tech bellwether. Its stock performance has largely tracked the Nasdaq. Its switches and routers composed the nervous system of an increasingly connected world, and so its orders became an early warning system of sudden shifts in the broader economy. Cisco won Wall Street's respect by regularly sharing its views on the macroeconomy in its earnings conference calls.
In January 2008, for example, Cisco (CSCO) noticed a slowdown in orders coming from automakers and financial institutions -- a warning of the financial crisis and recession that was to follow. In March 2009, in the nadir of the Great Recession, Cisco again forecast a bottom, reporting that its customers were seeing "stabilization" as the worst was passing.
By 2009, Cisco wasn't quite the Silicon Valley luminary it was in the late 1990s, but it was still considered the Internet's backbone, the biggest seller of switches and routers. A year later, Cisco began to face tough problems. After reaching $27 a share in April 2010, Cisco began to slump.
More than that, Cisco stopped tracking the Nasdaq. It's lost 21% of its value since the spring of 2010, while the Nasdaq Composite Index has gained 59%. Cisco went from bellwether to laggard, hurt by competition on the low end of its market, the rise in software-driven networks and the desire of giants like Apple (AAPL), Google (GOOG) and Facebook (FB) to build their own data centers.
Cisco's efforts over the years to diversify into set-top boxes, software, and other markets have had mixed results. The company cut 8,000 jobs in recent years, helping to push its stock back above $26 a share in August of this year. Shortly after, the stock declined as Cisco warned investors of slower revenue growth. Cisco said then it would cut another 4,000 jobs, prompting concerns of how many cuts were needed for Cisco to turn itself around.
Last week, the news became even more dire. The company said it expects revenue to decline 9% in the current quarter and forecast profit at 46 cents a share, or 6 cents below the Street's consensus. Since then, Cisco has lost another 11%, falling to $21 a share. That puts Cisco's stock exactly where it traded a decade ago, in mid-November 2003.
How much of the recent declines are caused by Cisco's internal issues vs. the macroeconomic factors the company has long been able to predict? Goldman Sachs figures it breaks down to two parts Cisco problems to one part global economy. Longer term, Cisco can still turn things around by buying its way into growing markets. What's more worrisome is the suggestion of new economic headwinds: Does Cisco see another storm coming?
In last week's conference call, CEO John Chambers pointed to a sudden slowdown in orders in late September. The impact of the government shutdown was muted, he said, (revenue from government customers declined only 1%). Rather, the decline was coming from a number of emerging economies, where orders suddenly dropped off in October.
In the most recent quarter, Chambers said, "Our top five emerging markets declined 21%, with Brazil down 25%, Mexico down 18%, India down 18%, China down 18%, and Russia down 30%." Orders from North America and Europe rose slightly. Pubic sector revenue did well despite the U.S. government shutdown, but orders from service providers fell 13%.
Last month, IBM (IBM) reported a 9% drop in revenue from emerging markets, driven largely by China's shift in economic policies. Cisco's earnings forecast spurred discussion that China is retaliating against U.S. policies limiting the import of telecom equipment from Huawei, as well as the fallout from the NSA leaks. But Cisco's problems went well beyond China.
At its annual shareholder meeting Tuesday, Chambers elaborated further. "I believe that we are in a period of much slower economic growth than we should be in for a whole bunch of different reasons," he said. In terms of emerging economies, "they are going to hit pretty hard ... Our numbers would indicate it might get tougher before it gets better."
Chambers comments Tuesday coincided with news that the OECD was cutting its global growth forecasts for this year and next, citing an imminent slowdown in emerging markets like India and Brazil.
During the 1998 financial crisis in Asia, Cisco increased its investment in the region, strengthening its market share in several countries when they recovered. It's not clear the company will be so aggressive this time. "We've decided that given the uncertainty of the market, we want to keep a certain amount of our powder dry in terms of opportunities," Chambers said in answer to a shareholder question Tuesday.
Instead, Cisco will be applying its cash to shore up its own stock. Last quarter, the company bought $2 billion of its own stock. In the same quarter a year earlier, Cisco bought $253 million, or one-eighth as much. The company also said last week it would increase its repurchase program by $15 billion, giving it a total of $31 billion to spend on its flagging stock in the future.
Cisco may be as prescient as ever about predicting shifts in the global economy, but as long as it's stuck in the middle of a long and difficult turnaround it will have a hard time taking advantage of them.
Apple is more valuable than Google by every measure except sentiment on the Street.
FORTUNE -- In June Rolfe Winkler, writing for the Wall Street Journal's MarketBeat blog, posted an item called Big Apple, Bigger Google.
By Winkler's calculations, Google's (GOOG) value had just surpassed Apple's (AAPL). Not in market capitalization, mind you, (i.e., share price times number of outstanding shares), which is the way these thing are usually measured, but in MOREPhilip Elmer-DeWitt - Aug 12, 2013 6:35 AM ET
Apple posted record quarterly sales and got a one-day bounce in the stock market. Amazon posted its third quarterly loss in a row and hit an all-time record high.
FORTUNE -- In November, the last time we compared Apple's (AAPL) and Amazon's (AMZN) price-to-earnings ratios -- the simplest and most widely used metric to gauge the relative value of a pair of stocks -- Apple's trailing PE was 13 and Amazon's was MOREPhilip Elmer-DeWitt - Jul 29, 2013 5:08 AM ET
Since hitting $705 in September, Apple has dropped 24%. Will its shares ever bounce?
FORTUNE -- With Apple's (AAPL) share price off sharply from its September highs and seemingly stuck in the mid-$500 doldrums, sell-side analysts with considerably higher price targets (mean: $764) have been busy trying to calm their anxious clients. Excerpts from this week's notes:
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As Apple's share price passes $665, are some analysts having second thoughts?
FORTUNE -- After Apple (AAPL)'s third fiscal quarter earnings came in below Wall Street's expectations, several analysts -- including Goldman Sach's Bill Shope, ISI's Brian Marshall and BMO's Keith Bachman -- lowered their 12-month price targets (to $790, $710 and $680, respectively).
At least their targets are still higher than Apple's current price. After setting new record highs two sessions MOREPhilip Elmer-DeWitt - Aug 22, 2012 7:30 AM ET
One fund manager says his biggest fear is that he's missed his chance to fully buy in
FORTUNE -- The last time Apple (AAPL) closed above $633 was April 9, 2012. The next day it began into a ragged six-week decline that by May 18 (the sharp dip in the middle of the chart at right) had knocked $115 off the share price and more than $100 billion off the company's MOREPhilip Elmer-DeWitt - Aug 17, 2012 3:51 AM ET
Midway through 2012, the analysts' calls range from a low of $270 to a high of $1,200
FORTUNE -- Robert Paul Leitao, who runs the Braeburn Group of independent Apple (AAPL) analysts, published the 12-month price targets of 15 Braeburn members on his Posts at Eventide website Saturday. They range from a low of $700 to a high of $1,100, for an average of $890 a share.
How does that compare with MOREPhilip Elmer-DeWitt - Jun 17, 2012 8:22 AM ET
There seems to be a growing disconnect in Wall Street's valuations
FORTUNE -- I know that comparisons, as Shakespeare's Dogberry put it, are supposed to be odorous, but this one is beginning to stink.
How can Apple (AAPL), with $110 billion in the bank, annual sales of $140 billion and earnings that nearly double every year, be valued so much lower than Amazon (AMZN), which has $6 billion in the bank, sales MOREPhilip Elmer-DeWitt - May 8, 2012 7:10 AM ET
The only thing that seems to matter to Wall Street is how much cash it has in the bank
FORTUNE -- It's been a year since Asymco's Horace Dediu -- mystified by the apparent decoupling of Apple's (AAPL) share price from its earnings growth -- first spotted the correlation between the company's valuation and its holdings in cash and marketable securities.
"As far as the market is concerned," he wrote at the MOREPhilip Elmer-DeWitt - May 7, 2012 8:04 AM ET
Having missed the boat last quarter, Wall Street is taking a second look at China
FORTUNE -- I can count on one hand the number of Wall Street analysts whose estimates of Apple's (AAPL) iPhone sales last quarter came within 2 million units of the correct answer (35.1 million).
Most of them were so distracted by the predictable fall-off in Verizon (VZ) and AT&T (T) activations after Christmas that they missed the significance of MOREPhilip Elmer-DeWitt - Apr 30, 2012 11:00 AM ET
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